The Positive Voices

It would be ironically amusing, if it wasn’t just so sad and plausible, given the history of recent decades. I’m referring, of course, to the recent transparently self-serving recommenda-tions of the GR Press and local “business lead-ers” that the solution to Michigan’s business woes is for Michigan workers to accept lower wages and benefits as the necessary sacrifice for economic recovery. Permanently, they mean. The is the same old Turn--Michigan-Into-Mississippi recovery plan we’ve been following since the ’80s and Engler… and it still hasn’t worked. Our local “business leaders” sound as dumb as Mississippi’s political leaders in Congress, who howled that General Motors should be “liq-uidated,” not saved, then scurried away from the cameras to ask automotive industry analysts if it would have any effect on their Mississippi Nissan plants. The expert analysts (from Michi-gan, of course) had to patiently explain to them that Nissan and other foreign-owned plants in the US get most of their parts and raw mate-rials from the same US suppliers as American auto companies, not from Japan, and that liq-uidating GM would wipe out all those suppliers (parts, rubber, plastic, glass and steel suppliers and mills – you name it) and shut down foreign auto plants in the US for months, if not years. Because – get this – it’s too expensive to make parts and assemble raw materials overseas and ship them here, even from China. American au-to-parts manufacturers and raw materials sup-pliers are cheaper and faster. These supposed “business leaders” are either rich village idiots or craven robber-barons who profit on the misery of others – lots of oth-ers. Rising wages and incomes are a funda-mental requisite for a thriving economy. And when average wages are stagnant or declining, it eventually undermines the real incomes of almost everyone, small-business folks, profes-sionals, factory-owners and corporations and their shareholders included. Overpaid large corporation managers and other shady fellows with license to fleece shareholders are the only possible exceptions I can think of. I grew up in an extended family of small-business owners, managers and professionals. I’ve started and managed a number of small businesses and organizations. I’ve been part-owner of a small manufacturing company (au-tomotive and office furniture parts) for decades and now chair its board of directors. And I’ve experienced first-hand the rise and fall of busi-ness earnings mirroring the rise and fall of real wages and incomes. This has been so amply demonstrated by the ups and downs of Michi-gan’s economy over the years that it’s hard to believe that there are still some business folks who fail to comprehend it. Unfortunately, human nature seems to be at odds with a sensible understanding of eco-nomics. Henry Ford was called a traitor to his class by other “business leaders” for paying his workers higher wages. Ford wisely predicted that it would ultimately pay off if factory work-ers could afford to buy the cars they made. Back in the ’70s, the American automotive business was still running in overdrive, wages were constantly rising and average working folks were buying new cars as often as every two years. Local manufacturing was humming along profitably too and shareholders were ac-customed to fat and growing dividend checks. There were complaints about “inflation” but most folks actually benefited from it. So did most business – there was an incentive to buy now because prices were expected to rise the longer you waited. In front offices there was regular grousing that production workers were making way too much money (this was back when we could af-ford large harems of managers). I thought the complaints rather odd at the time, because we calculated managers salaries from what we paid our production workers. If production work-ers earned less, so would managers. But some managers had the absurd notion that high pro-duction workers’ wages were somehow holding back managers’ salaries. I’ve learned from experience that most people tend to pick on people below them in the pecking order or food chain. Thus, in politics, the endless voter complaints about welfare and other benefits for the poor. Even the working poor draw sparse sympathy. At work, people complain endlessly about folks below them on the ladder and obsequiously agree with man-agers above them. Good owners and managers fight it and wish it were the other way around. But the set-up has always been ripe for exploi-tation. Beginning with the Japanese invasion and accelerating with the rapacious corporate takeovers, liquidations and downsizings of the Reagan era, wages and real incomes for average Americans began to stagnate and even decline and it began to require the earnings of two full-time adult workers in a family just to hang on to a middle-class existence. Corporate raiders and destructive business practices were rewarded with huge profits, while smaller businesses struggled to survive. At a seminar on Japanese business practices in the early ’80s, we were instructed on how to emulate their high manufacturing and quality control standards, but the real business model of the Japanese auto makers was inadvertently revealed – they screwed the hell out of their workers and companies that supplied them. That lifetime employment for workers stuff was always a myth. Only a fraction of their workforce was ever covered. The rest were frequently laid-off or fired. Retirement was mandatory at age 50, even for managers, and pensions amounted to little more than a year’s salary in a one-time check. Retirees had to resort to the supplier companies for employment, despite very low wages, just to survive. The suppliers got high-skill workers for pennies, and could hire or fire them at will. They needed every advantage they could get. They were captive to the auto companies they served and ruthlessly squeezed for cost cuts. I remember commenting at the time, “To catch up with the Japanese, do you think the Big Three are going to choose to completely change their whole way of doing business…or just screw their suppliers?” Duh-h-h!. Not long after, GM announced that it was going to cut off 75% of its suppliers and demand steep price cuts from the rest. As Henry Ford might have predicted, the Japanese model has not been working out so well in the long run for the Japanese. Their economy has been in a “recession” for more than a decade, with high unemployment, declining incomes and no end in sight. They are in a “deflationary spiral” perpetuated by the factors mentioned above. With the persistent threat of unemployment (job guarantees are long gone) and retiring into poverty, their domestic economy is almost dead because people are understandably hoarding their incomes instead of spending. And there’s no incentive for consumers to buy, because prices decline the longer you wait. Business earnings are deflating along with everything else. Some economists believe that the US has been sliding into a similar deflationary spiral, the usual signs and symptoms masked by rising oil prices, health care costs and middle-class lifestyles subsidized by the real estate bubble and borrowing. Deflationary spirals are as much psychological as economic. Most Americans used to be pretty confident that their incomes would continue to rise, despite a few bumps in the road, and that they, and their children, could reasonably expect a higher standard of living in the future. The real estate bubble collapse and imploding economy have shaken that confidence. Deflationary spirals are brutal and hard to reverse because the psychological damage – depression and pessimism – only reinforce the spiral. At a business meeting not long ago, one hard-nosed local businessman became very heated on the subject of lowering wages. “It’s the worst thing you can do! It’s demoralizing and sends the message that they’re worth less. How hard do you think they’re going to work for you after you cut their pay? It costs more in low morale and lost productivity than it will ever save you. I never, ever cut wages!” I think the advice is equally applicable to state and local economies and governments, which some folks are so fond of saying should be run like businesses. In this case I agree with them.